Setter Capital Volume Report. Secondary Market 2014

Transcription

1 Setter Capital Volume Report Secondary Market 2014

2 Setter Capital Volume Report Highlights The Setter Capital Volume Report analyzes global secondary market activity in 2014 and covers the following topics: Total Volume of Secondary Deals Secondary Volume 2014 vs Breakdown of Volume between Funds and Directs Breakdown of Volume by Type of Assets Purchased Breakdown of Volume by Geography of Assets Purchased Profile of Buyers Number of Deals and Average Deal Size Buyers Scope of Interest Profile of Sellers Percentage of Intermediated Deals Predicted Secondary Deal Volume for 2015 Changes in the Level of Competition Changes in Debt Levels Expected Multiples

3 The Survey As the secondary market continues to grow and evolve, we seek to take a comprehensive and methodical approach to quantifying the market and identifying trends. Using a survey approach, we asked principals directly the same questions that buyers, sellers, agents and secondary fund LPs often ask us. How much was completed in 2014? How much was completed in LBO, venture, real estate, infrastructure and hedge fund secondaries? What are the expected returns and debt levels? This report summarizes the results of our survey of the most active buyers in the secondary market for alternative investment funds conducted early January Volume is defined as total exposure (NAV + unfunded in USD) purchased by the respondents and participants included only deals where a binding agreement (e.g. P&S) was entered into during We were pleased by the high response rate of the 115 most active and regular buyers in the secondary market, 84 agreed to share their confidential results (see partial list of participants). Given the high response rate and the fact that nine of the ten largest buyers participated, the respondents to our survey represented 84% of the transaction volume, making it the most reliable and detailed study of the industry s activities. Being mindful of response bias, we compared the list of respondents to those who had declined to respond, and did not find any meaningful or obvious differences in the known and observed levels of activity between the two groups. We then estimated and charted the total volume, number of transactions, and other reported figures herein by prorating the survey results based on the proportion of small, medium and large buyers that participated. We hope you find the results interesting and useful. We welcome any questions and would be happy to provide further insights into the results. 3 P a g e

4 2014 in Review 2014 marked the busiest year for the secondary market to date with an estimated $49.3 billion in completed transactions. Year over year, volume increased 37% driven by new and incumbent buyers who optimistically and aggressively put money to work and the large number of sophisticated LPs who executed opportunistic sales. In lockstep, Setter Capital experienced a strong year with $4.7 billion in completed transactions. The breadth and number of buyers continued to increase with total volume and activity of small and medium buyers becoming more significant. Large buyers, defined as those who deployed more than $1 billion, accounted for 59.8% of the market s total volume in 2014, while mid-sized buyers accounted for roughly 34.9% of total volume and small buyers represented roughly 5.3%. Also driving the expansion of the secondary market was the number of buyers expanding their scope of interest into areas in which they were previously inactive. Approximately 31% of buyers broadened their secondary focus in 2014 to include buying other alternative investment types (e.g. infrastructure, real estate, portfolios of direct, etc.). There were a total of 1270 transactions in 2014, with an average size of approximately $37.7 million. Although the number of transactions was roughly the same as in 2013, the average deal size increased 34.6% year over year, reflecting the fact that more multi-hundred million / billion+ dollar transactions were completed in The marked increase in large deals, the dominance of secondary funds (78.6% of total volume) and the increased market share of large buyers, all demonstrate that 2014 was a banner year for the large entrenched secondary players. Transaction volume completed by large buyers was $29.5 billion, a 54.6% increase in volume year over year. The ranks of opportunistic sellers continued to grow given investors increasing familiarity and comfort with secondary sales along with the disappearance of the stigma associated with selling. Pensions (28.4%) and banks (24.8%) were the most active sellers in 2014, and most buyers expect the trend to continue in 2015 with pensions increasing in proportion. Approximately 56.9% ($28.1 billion) of total secondary volume involved an intermediary in 2014, either on the buy or sell-side as compared to an estimated $20.5 billion in We expect the level of intermediation to continue to rise in response to the entrance of new agents and as sellers struggle to stay on top of the ever growing buyer universe. In 2015, buyers expect another record year for the secondary market, with volume estimated to hit $56.5 billion. This would represent a growth rate of 14.5%, albeit lower than the 37.1% experienced in Indeed, only 14.3% of participants believed 2015 volume would be significantly higher than 2014, versus 49.3% who felt 2014 would be significantly higher than 2013 (Setter Capital Volume Report FY 2013). 4 P a g e

5 Volume in $ MM Total Volume Total secondary market volume for 2014 was $49.3 billion. This is the volume estimate of the 115 secondary buyers with dedicated secondary efforts and includes 60 secondary funds, 35 funds of funds, 10 hedge funds, 7 investment consultants, 2 pensions and 1 insurance company. We believe this estimate is reliable as the 84 survey respondents alone reported $41.5 billion in volume in their survey responses. The figure is also conservative, as it does not include the activity of over 1000 opportunistic and non-traditional buyers, whose combined activity may be significant. For instance, the activities of all sovereign funds (including ADIA, ADIC, GIC, Temasek, etc.) were excluded entirely, even though some have recently built teams dedicated to secondary purchases. Type of Assets Purchased 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Private Equity (Directs 1 & Funds): $37.9 billion (35.9% increase YoY) Real Estate Funds: $6.8 billion (32.5% increase YoY) Hedge Funds: $2.5 billion Infrastructure Funds: $1.9 billion (177.7% increase YoY) Agriculture/Timber Funds: $0.2 Billion (7.8% decrease YoY) 2014 Volume Compared to % 28% Higher Similar Lower 67% This year s volume represents a 37.1% increase over 2013 volume which was $36 billion. Consistent with this figure, 67.3% of respondents said 2014 volume was significantly higher than 2013, 28.1% felt it was similar and only 4.6% felt it was significantly lower. Private Equity secondary volume increased from $27.9 billion to $37.9 billion, a 35.9% increase in Real estate volume increased from $5.1 billion to 6.8 billion, a 32.5% increase in Directs include fund recapitalizations and restructurings, fund liquidations, and purchase of single minority stakes and co-investments. 5 P a g e

6 Volume in $MM Assets Purchased Funds vs. Directs 22% In 2014, $38.3 billion of funds (77.6%) and $11.0 billion of directs (22.4%) were purchased. 78% Total Funds by $ Volume Total Directs by $ Volume Secondaries of direct investments increased significantly from $5.3 billion in 2013 to $11.1 billion in 2014, which represents a 109.4% increase. This category includes the volume transacted in GP restructurings and purchases of single minority stakes and co-investments. Breakdown of Fund Secondaries 30,000 25,000 20,000 15,000 10,000 5, Private equity fund purchases totaled $26.8 billion (~70.0% of total fund sales) - Real estate fund purchases totaled $6.8 billion (~17.7% of total fund sales) - Hedge fund purchases totaled $2.5 billion (~6.7% of total fund sales) - Infrastructure fund purchases totaled $1.9 billion (~5.1% of total fund sales) - Agriculture/Timber funds purchases totaled 0.2 billion (~0.5% of total fund sales) 6 P a g e

7 Types of Funds Purchased Private Equity Funds Purchased 2% 4% 6% 5% LBO VC Mezz FoF Energy LBO $22.2 billion (82.8%) Energy $1.7 billion (6.4%) VC $1.3 billion (5.0%) Fund of Funds $1.0 billion (3.6%) Mezzanine /Credit $0.6 billion (2.2%) 83% Real Estate Funds Purchased 27% 38% Core Value-Add Opportunity Core $.2.6 billion (38.2%) Value-Add $2.4 billion (34.9%) Opportunity $1.8 billion (26.9%) 35% Hedge Funds Purchased 20% Main Funds Main Funds $0.5 billion (19.8%) Side Pockets $2.0 billion (80.2%) Side Pocket 80% 7 P a g e

8 Volume in $MM Geography of Assets Purchased North American and Western European focused funds/directs accounted for the vast majority of assets purchased in 2014: North America $23.6 billion Western Europe - $18.3 billion Asia-Pacific $4.8 billion % 1% 2% 10% Asia Pacific 37% 48% North America Western Europe CEE and Russia MENA - Africa Latin America In terms of percentage, North American focused funds and direct investments accounted for 47.9% of total volume, Western European assets accounted for 37.1% and Asia- Pacific focused funds/directs accounted for 10.0% of sales. Global 8 P a g e

9 Profile of Buyers Type of Buyers 1% 3% 13% 4% 79% Secondary Funds Hedge Sec/FoFs Funds of Funds Inv. Consultants Pensions Insurance Companies Other Secondary funds were the most active buyers in 2014, accounting for 78.6% ($38.8 billion) of total purchases, while funds of funds accounted for 12.8% ($6.3 billion), and funds of hedge funds/hedge fund secondary funds accounted for 4.4% ($2.2 billion). Please note: over 1000 non-traditional buyers were not included in our survey and the resulting estimates. Locations of Buyers 2 50% N.America Europe Asia European buyers transacted the most (~50.3% of total volume) in 2014, followed by North American buyers (~49.2%). Other 49% 2 Location is based on head office location. 9 P a g e

10 Volume in $MM Average Number of Transactions Activity Levels of Small, Medium and Large Buyers Volume Distribution by Size of Buyer Average Number of Transactions by Size of Buyer Buyers Grouped by Their Volume $MM Buyers Grouped by Their Volume $MM Applying the survey respondents dollar volume and transaction numbers, while taking into consideration the proportion of small, medium and large buyers that did not participate, we estimated the market share of small, medium and large buyers as follows: 50 small buyers (defined as those that deployed less than $100 million in 2014) purchased $2.6 billion, representing approximately 5.3% of total volume across 259 transactions with an average deal size of $10.0 million. There was a slight decrease from 2013, where they accounted for 6%. 54 medium sized buyers (defined as those that deployed $100 to $999.9 million in 2014) purchased $17.3 billion, representing approximately 34.9% of total volume across 738 transactions with an average deal size of $23.4 million. There was a decrease from 2013, where they accounted for 41%. 11 large buyers (defined as those that deployed $1 billion or more in 2014) purchased $29.5 billion, representing approximately 59.8% of total volume across 273 transactions with an average deal size of $108.0 million. There was a meaningful increase from 2013, where large buyers accounted for 53%. 10 P a g e

11 Average Deal Size $MM Number of Deals and Average Deal Size Respondents completed approximately 1067 secondary deals in 2014, from which we extrapolated an estimate of 1270 transactions across the entire secondary market for alternative assets, with an average size of approximately $37.7 million. Although the number of transactions in 2014 was roughly the same as in 2013, the average deal size increased 34.6%, reflecting the fact that more multi-hundred million / billion+ dollars deals were completed in Average Deal Size by Size of Buyer Buyers Grouped by Their Volume $MM 11 P a g e

12 Buyers Scope of Interest Buyers That Broadened Their Focus in % Broadened Scope Did Not Broaden Scope Approximately 31.4% of participants broadened their secondary focus in 2014 to include buying other alternative investment types (e.g. infrastructure, real estate, portfolios of directs, etc.). This percentage represents a 1.4% increase from % Buyers That Intend to Broaden Their Focus in % 38% Will Broaden Scope Will Not Broaden Scope Approximately 38.1% of the participants plan to broaden their secondary focus in 2015 to include buying other alternative investment types. This percentage represents a 14.1% increase from buyer s expectations in 2013 and a continued trend of buyers to diversify. 12 P a g e

13 Buyer Competition, Debt and Returns Buyer Competition for Deals in 2014 Compared to % 47% 50% Higher Similar Lower Over 50% of respondents felt buyer competition in 2014 was significantly higher than 2013, while 46.7% felt it was similar. Level of Debt Used by Buyers in 2014 Compared to % 32% Higher Similar Lower Approximately two thirds believed the level of debt used by buyers had increased significantly in % Expected Multiple for Secondary Deals Completed in According to the respondents, the average expected gross multiple for secondary deals completed in 2014 will be 1.43x P a g e

14 Volume in $MM Seller Profiles Type of Sellers in 2014 Banks Expected Sellers for % 4% 4% 7% 5% 12% 2% 25% 28% 2% Insurance Companies Pensions Sovereign Funds Family Offices Endowments / Charities Fund of Funds / Secondary Funds Hedge Funds / Hedge Fund of Funds Other Fund GPs (non FoF or Sec Funds) Corporate - Balance Sheet (non-financial) 7% 3% 16% 1% 6% 1% 6% 18% 38% 4% Pensions (28.4%) and banks (24.8%) were the most active sellers in Most buyers expect the trend to continue in 2015 with pensions taking an increasing proportion. Geography of Sellers % 4% 5% 13% Asia Pacific North America Western Europe % CEE and Russia MENA - Africa Latin America % In terms of the location of sellers, North America and Western Europe based sellers accounted for the vast majority of volume in North America based sellers sold $22.3 billion (45.2%), whereas Western European based sellers sold $14.2 billion (28.8%). Asia-Pacific based sellers accounted for 13.3% of the total volume. 14 P a g e

15 Intermediaries Volume Intermediated 43% Total Volume 57% Involving Intermediary Total Volume Not Involving Intermediary Approximately 56.9% ($28.1 billion) of total secondary volume involved an intermediary, either on the buy or sell-side. Although the percentage of deals intermediated was the same as 2013, in terms of volume, agents intermediated $7.6 billion more in deals, an increase of 37% over Indeed, Setter Capital had its most successful year with $4.7 billion in completed transactions. 15 P a g e

16 Volume in $MM Projected Volume for Full Year 2015 How 2015 Volume Will Compare to % 14% Similar Higher Lower 92.7% of respondents felt 2015 volume will be similar or higher to 2014 volume. This figure is lower than the prior year (i.e. 99%) suggesting secondary market volume will not grow as fast next year. 78% Predicted Volume for Respondents predicted total volume for 2015 across all asset classes to be $56.5 billion, which would represent a 14.5% increase over the $49.3 billion transacted in Estimated 2015 volume is $43.9 billion for private equity, $7.7 billion for real estate, $2.5 billion for hedge funds, $2.2 billion for infrastructure funds and $0.2 billion for agriculture/timber funds P a g e

17 Select Respondents 17Capital Abbott Capital Management Access Capital Advisors Adams Street Partners Adveq Akina Partners Alpha Associates Arcano Group Auda International Axiom Asia Canada Pension Plan Investment Board Capital Dynamics Commonfund Capital Coller Capital Corbin Capital Partners DAAM UK (Deutsche Bank) Dorchester Capital Advisors Lothian Pension Fund Fondinvest Glenmede Trust Graphite Capital Greenspring Associates Hamilton Lane Advisors HarbourVest Partners Jasper Ridge Partners Mantra Mercer Munich Private Equity Partners Neuberger Berman Northleaf Capital Northern Trust Corporation North Sky Capital NorthStar Realty Newquest Capital Partners Pantheon Ventures Partners Group PEI Funds Permal Capital Pictet Alternative Investments Portfolio Advisors Private Advisors RCP Advisors Stafford Capital Partners Siguler Guff Advisors SL Capital Sobera Capital Stepstone Storebrand TR Capital Group Tyrus Capital Unigestion Verdane Capital Vintage Investment Partners W Capital Group Willowridge Partners 17 P a g e